Fixed rate mortgages still popular, but Government should provide more incentives for long term deals, says CML

04 December 2007

The latest research from the Council of Mortgage Lenders suggests that there is still "a reasonable consumer appetite" for long term fixed rate mortgages, but warns their continued growth could be stunted unless the Government provides more incentives.

The survey revealed that 42 per cent of people would pick a fixed rate if they were to choose a new mortgage deal now, 13 per cent said they would go for a variable, while the remainder said they did not know what they would do.

Of those who would pick a fixed rate, the majority would go for a shorter term deal of up to five years with 43 per cent saying they would go for a medium term of between 5 and 10 years, or long term deal of 10 years or more.

Although 25 per cent of people said nothing would encourage them to take on a fixed term deal of more than 10 years, 37 per cent said the peace of mind that their finances would be manageable in the event that rates went up may entice them into going for a longer term deal.

But, warns the CML, the costs and constraints of funding the flexible features that make long term fixed term deals more attractive to borrowers may prevent any further growth, unless " the government incentivises them further".

Nearly half of the people surveyed said they would not choose a long term fixed rate because they would lose out if the rates went down and 35 per cent said they would not want to be locked to the same lender for a long time. Almost a third said the lack of flexibility would put them off and more than a quarter said the restrictions surrounding making early repayments would discourage them.

"In the absence of a major policy intervention from the government, the take up of long-term fixed rates looks set to remain relatively small for the foreseeable future, and the most we are likely to see is some movement from short-term to medium-term fixed rates," said Bob Pannell, CML head of research.

While Rob Thomas, CML senior policy adviser, added: "Measures that would trigger really significant demand for long-term fixed rates are potentially controversial or costly. But mortgage lenders' willingness to innovate in this product area suggests that they will be more than happy to meet such demand if it arrives."